Guest Post: Is 15 Too Young? by Chris Pascale

Greetings, Joes! Today I welcome Chris Pascale as a guest writer. He is an author and accountant from Long Island, the former CFO of Portfolios with Purpose, and a current member of the IRS’ Office of the Chief Counsel. He is going to share with us today about whether 15 years old is too young to open up a Roth IRA. Chris, take it away! ~EM

Is 15 Too Young?

By: Christopher Pascale

My daughter is 16, and some might say she is growing up too fast. Not only did she get a job last year, but she also started saving for retirement with a Roth IRA!

Parents who are worried about their teens growing up too fast might want to re-think the whole thing, and maybe help them step a bit into the future. Opening a retirement account is easy, and it’s one more way that we can ensure our kids do better than we have.

What Is a Roth IRA?

A Roth IRA is a type of Individual Retirement Account. You can put money in that will grow tax-free. While a 401(k) and traditional IRA lets you save on taxes today, the Roth IRA lets you save on taxes when you’re old, because even if it grows to $50 million, you can take it all out at once and not pay any taxes.

How Much Should Your Teen Save?

How much to save depends on what your teen earns. If he’s doing commercials and modeling, it might be right to invest a large amount. He should get to enjoy some of the cash, but blowing it all is not only foolish at any age, it’ll cost him down the road.

My daughter makes about $250 a month. As a result, she is having $25/month automatically withdrawn. She won’t miss this money, and when she’s in college the account will grow into thousands of dollars, even if she never raises the amount.

What Will This Do for a 15-Year-Old?

While most kids are thinking in the abstract about their future, my daughter now has something solid. She won’t be thinking about “when” she has something, she’ll already have it.

This is also a positive influence on other children in the community. After we opened the account, my 11-year-old asked, ‘why can’t I have a retirement account?’ And one dad told me his daughter said that she wanted to work so she could save for retirement, too.

The alternative is to be like I was. I made thousands of dollars as a teenager, but put nothing away for retirement. I didn’t even do something cool, like go to Japan.

How to Open a Roth IRA

Starting a Roth is easy. You can open it yourself by Googling “how to,” or you can call one of many investment brokers who cater to small customers like my daughter and I. We went through an Edward Jones advisor who made the whole process fast and easy.

The most important thing is that our kids can have a better life.

Your Teens Can Become Rich without Being Rich

If my daughter only saves $25/month from 15 to 60-years-old, and the account grows at a conservative 7% rate, she’ll turn $13,500 into $80,000. If at 25 she raises the amount to $50/month, it will be $91,000. But she will really have much more, because she started young, and saving for the future won’t be a burden.

She will very likely make at least $50,000 a year (in today’s dollars) throughout her adulthood – from the age of 25 on. If she puts away 5% of her income – $2500 a year – over the following 35 years, the fund will grow to be well over $400,000. The point is that if you put away a little, it can turn into a lot. And if you sacrifice beyond the point of a painless 5%, you can reap incredible returns.

The Cost of Waiting

I didn’t open a Roth IRA until I was 25. I did it with $25/month because I didn’t feel like I could afford to put anything away. However, I knew it was important, so I got started.

10 years later I’m contributing only $150/month. The account is worth $14,000. At the rate I’m going, my Roth IRA will only be worth $120,000 when I reach 60-years-old. Like my daughter, I worked at 15, but blew most of it. If my time machine was working I’d go back and start putting $25/month away back then. But it’s not. The next best thing I can do is help my kids do better.